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October 5, 2025

Volatility Spillovers Between Financial Markets and Cryptocurrencies

LSLamia SEBAIHigher Institute of Management JAJahmane AbderrahmanIPAG Business School KKK. M. Rezaul KarimH.B. Fuller (United States)

Key Points

A significant volatility spillover was observed between stock markets and cryptocurrencies during the study period.
The GARCH model identified time-varying conditional correlations among Bitcoin and other cryptocurrencies, confirming market dynamics.
Increased correlations were noted between cryptocurrencies and financial indices at the start of the COVID-19 crisis, indicating contagion effects.
Cryptocurrencies and gold were found to act as potential hedges for international investors during 2017-2018.

Abstract

This paper analyses the relationships between the volatilities of five major stock markets (S&P 500, CAC 40, DAX, FTSE 100, and Nikkei 225) and five cryptocurrencies (Bitcoin, Dash, Ethereum, Monero, and Ripple), (WTI), and gold. The GARCH model, which describes the volatility of financial assets and cryptocurrencies, was used. A significant and higher volatility spillover was observed across these market pairs. The conditional correlation between Bitcoin and other cryptocurrencies is time-varying, but the conditional correlations between crypto-currencies and gold and all assets are negative during the period (2017-2018) and positive. At the beginning of the COVID-19 crisis, the conditional correlation between cryptocurrencies, stock indices, and WTI increased, which confirms the impact of COVID-19 related contagion between them.Our findings show that cryptocurencies and gold are considered hedges for the international investors during the period 2017-2018.

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